Antitrust Chief Offers Hints of Why AT&T-Time Warner Merger Approval Hit a Snag

Makan Delrahim

WASHINGTON — Makan Delrahim, who leads the antitrust division at the Department of Justice, offered some clues on Thursday as to how he views the proposed merger of AT&T-Time Warner and other major transactions.

AT&T appears to be facing major roadblocks in its effort to secure government approval of the $85 billion merger, as the Justice Department has reportedly sought out state attorneys general to join a lawsuit to block the transaction. Last week, AT&T executives reportedly were told that they had to divest Turner Broadcasting, which includes CNN, or DirecTV to get a green light.

Speaking before the American Bar Association on Thursday, Delrahim did not mention the AT&T-Time Warner transaction by name, but he said that he was no fan of placing so-called behavioral conditions on mergers, and instead prefers structural remedies, in which companies sell off business units.

“Instead of protecting the competition that might be lost in an unlawful merger, a behavioral remedy supplants competition with regulation; it replaces disaggregated decision making with central planning,” Delrahim said in his speech.

He cited DOJ guidelines that behavioral conditions “impose direct, frequently substantial, costs upon the government and public that structural remedies can avoid.”

“Like any regulatory scheme, behavioral remedies require centralized decisions instead of a free market process,” Delrahim said. “They also set static rules devoid of the dynamic realities of the market.  With limited information, how can antitrust lawyers hope to write rules that distort competitive incentives just enough to undo the damage done by a merger, for years to come?  I don’t think I’m smart enough to do that.”

AT&T CEO Randall Stephenson has said that he believes that the proposed merger is the type of “vertical” transaction that typically does not raise serious issues of anticompetitive conduct.

But Delrahim noted that another major vertical transaction, Comcast’s acquisition of NBC Universal in 2011, garnered Justice Department approval after it agreed to a set of behavioral conditions, which are set to expire next year. “Several observers took issue with this regulatory approach to antitrust enforcement,” Delrahim said.

“Behavioral remedies often require companies to make daily decisions contrary to their profit-maximizing incentives, and they demand ongoing monitoring and enforcement to do that effectively,” Delrahim said. “It is the wolf of regulation dressed in the sheep’s clothing of a behavioral decree. And like most regulation, it can be overly intrusive and unduly burdensome for both businesses and government.”

Last week, Stephenson said that AT&T was preparing for litigation. An AT&T spokesman on Thursday confirmed a report that the company had hired attorney Daniel Petrocelli of O’Melveny & Myers to defend the merger. He represented Fred Goldman in the wrongful death suit against O.J. Simpson, the Hollywood Foreign Press Association in its litigation against Dick Clark Productions, and Donald Trump in litigation filed by former students of Trump University.